The federal government plans to regulate emissions on new natural-gas-fired power plants, posing a major challenge for an industry that is being forced to phase out traditional coal-fired plants.

The electricity sector should expect to meet emission standards for new gas plants that will have to be built to replace coal-fired plants that reach the end of their commercial life after 2015, Environment Minister Peter Kent revealed in an interview on Tuesday.

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The climate regulations will hit hardest in Alberta and Saskatchewan, where booming economies are driving up electricity demand even as companies will need to replace aging coal plants.

The power companies responded forcefully to the plans, arguing the coal regulations will reduce the reliability of the electricity system and drive up costs to consumers in provinces that depend on coal-fired power, while the proposed gas rules would simply be unworkable.

The emission standard contained in the coal regulations is an “idealistic” threshold that can’t be met by coal-fired or gas-fired plants that will be needed as the coal plants are phased out, TransAlta Corp. chief executive officer Stephen Snyder said.

The draft coal regulations were released in the Canada Gazette last weekend, and will be finalized after a 60-day comment period. They require that any new or refurbished coal-fired plant, commissioned after July 1, 2015, emit no more carbon dioxide than a high efficiency gas-fired station, and set individual retirement dates for the country’s 21 coal plants.

Mr. Kent said the emission standard – 375 tonnes of CO2 per gigawatt hour – was set with a view to incorporating it into gas-fired power regulations in the coming years.

“We wanted to make sure that we didn’t bring in regulations for the coal-fired folks to hit a performance standard that would then have to be changed when we turned to working with the gas-fired sector,” he said.

The standard “reflects a fairly high efficiency for a natural-gas equivalent plant and it would probably mean that we would be consistent with that number when we get around to the natural gas reg.”

He did not indicate when Environment Canada would release draft regulations, but said it would come relatively quickly after finalizing the coal rules, in part because it is “less challenging” than the effort to impose greenhouse gas limits on sectors like the oil sands.”

In a telephone interview, TransAlta’s Mr. Snyder said the industry has concerns about the government’s planned coal regulations, and is concerned that the future gas rules would seriously erode its ability to generate electricity without dramatically driving up prices.

He is urging Ottawa to adopt a “fleetwide approach” - so that companies would have to meet an emission standard across their entire operation - rather than bring in plant-by-plant regulations.

“TransAlta and many members of the industry feel we can actually do perhaps even better than the government has laid out and with less economic impact if we can get the regulations to be a bit more flexible and a bit less prescriptive,” Mr. Snyder said in a telephone interview.

“It’s very difficult to have a prescriptive approach as laid out … these rules get at CO2 reduction but they don’t necessarily look at the economics, or the reliability, or the customer impact.”

TransAlta owns, either wholly or in partnership, four coal-fired stations in Alberta, but is also a major investor in wind and hydro projects in the province. It also has gas, hydro and wind power stations in eastern Canada.

In an analysis accompanying the regulations, Environment Canada said it expects the provinces will meet their electricity needs by adopting carbon-capture-and-storage technology for new coal-fired plants, building new gas plants, and increasing imports from provinces with large hydro power capacity.

It said Canada’s consumption of coal-fired power will drop by nearly half between 2015 and 2030, while use of natural gas for electricity will nearly double over the same period. Alberta, Saskatchewan and Nova Scotia will be most affected because they are most dependent on coal-fired electricity, while Ontario plans to phase out its remaining 15 plants by 2015.

But Mr. Snyder said companies will be reluctant to invest in new gas-fired plants until they are assured they will not face onerous regulations on existing plants, or an unattainable standard for new generating stations. The emission standard for coal plants “will really limit new gas plants in Canada,” Mr. Snyder said.

While the standard may be appropriate for a base-load plant operating at sea level in moderate temperatures, gas plants operate less efficiently – and therefore emit more carbon dioxide – at higher elevations and colder temperatures. And it would be impossible to meet the 375-tonne standard at natural gas plants that are used intermittently for peak-power needs and to back up wind power and other renewables.

“What the industry said is that, ‘We agree with setting a standard, we just don’t agree with the standard you picked. It’s an idealistic, perfect solution that just doesn’t work for most of Canada,’” the TransAlta executive said.

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